Blockchain: Panacea or Pandemic?

Right now there is no greater dichotomy regarding the future of information technology than with that of the blockchain. Liberating yet infuriating. Beautiful yet ugly. Established yet unproven. Immensely complex yet elegantly simple. In short, blockchain is one of the more fascinatingly profound ideas I’ve seen in 15 or so years. At OCL we began working on solutions that lent themselves well to the blockchain over 2 years ago, and last year when we started combining some of our technologies with blockchain, I was quite excited at what we were able to come up with.

But I’ve been down this road before. I’ve seen more than one professed technology of the future not realize its promised potential. Hell, I’ve worked with many of those companies. And while I’m quickly getting (or hoping to get) a reputation as someone trying to temper the exuberant expectations over blockchain technology, I am very intrigued by where all of this might be headed. And terrified.

Thoroughly and completely terrified. Not terrified with the technology itself or what is possible, but our natural tendency to leap first, look second.

In this piece I’m going to begin to tackle just two ideas surrounding the technology behind solutions people are looking towards blockchain as a panacea for the music industry.

I’m not writing these pieces to take apart the idea of using the blockchain with music, but just lend a critical voice that we need to start thinking through the process before we go headfirst into it. It is, after all, important to verify there is water in the pool before diving into it.

Terms and Rates and Smart Contracts – Oh My
One of the most touted aspects of using blockchain technology is the idea of combining it with something called a smart contract. Essentially this is a bit of executable code, a program or software robot, if you will, that resides in or can communicate with a/the blockchain. The idea is that an artist will simply write into the blockchain their ownership information, plus terms and rates so that every other system on the planet will be able to read those terms and rates and execute the artist’s wishes. Somehow, this smart contract will be capable of interpreting everything that needs to happen and performing that task. The idea is that if we had something like this, we could just eliminate the need for PROs and labels and whatnot, because we have a super-efficient and direct connection between rights owner and rights user. This puts the artist in complete control of their destiny and helps to solve many of the issues surrounding rights and data.

Or does it?

It sounds like a brilliant idea. Fewer middlemen and a more direct relationship with their works and fans. Except there’s a few problems that perhaps make it even worse. If you’ve ever actually dealt with the music industry you know that the business of art is just as subjective as the art itself and often you don’t know how to deal with a “thing” until the “thing” arises. The complexities of these situations cannot be fully captured by an actual contract, much less a virtual one. Plus, software robots and Artificial Intelligence don’t work well with the subjective nature of humans. They don’t understand intent.

Let’s say you have the terms of use for a song written into the blockchain that spell out how you can or cannot use a musical track (and keep in mind there is no such thing as simplified rights in an age where billions of people are creating trillions of uses). For example, an artist determines that in their terms you can create user-generated content, but not on services in certain countries that have a poor record of human rights, nor can it be used to promote certain products, nor can it be used on any offensive or exploitative platform, nor can it be used for certain political reasons or parties. Also since the artist is a staunch vegetarian and animal rights supporter, the music cannot be used with any media that contains cruelty or abuse, nor appear with visuals of any meat products. You can use the music for charitable organizations, but only certain types of charities, and not to raise money, just awareness. There is no commercial use allowed, but ad-revenue sharing might be allowed, but only if your audience scope is smaller than “X” and the views are kept below “X”. You may download the music for personal listening if you pay “X,” and streaming will cost “X” for these tracks and “X” for these others. Also, those rates are different depending on the region the listener is from and how many devices they are using. You can also stream the music for “X” amount in your place of business, but these rates are different depending on the size of your business and how many locations you have. Oh, and if you serve meat, you can’t play the music.

So the KKK charitable BBQ Pork event at the Whites-Only restaurant is certainly not going to be allowed to use this music, but how will a smart contract and a system devised to interpret all of this actually work? An artist can’t possibly be expected to keep on top of this. What about use in social or encrypted networks or apps where you can’t see what’s being created or how it is being used? And all of this has to happen in real-time and be automated. The complexities of writing such a smart contract and then it interpreting use or intent in a way that grants it in milliseconds is vast, if not practically impossible. And let’s not forget, the above scenario is based on the simplified assumption that there is only one owner (performance/publisher) of the work(s) in question. Now add three more owners, each with their own terms.

Granting an artist or songwriter more minute control over their work might seem like a fucking awesome idea, but the execution of all these details could actually add vast problems that bring the whole system to a screeching halt. If you think that greater control over works will bring greater simplicity, you are kidding yourselves.

To make any of the above workable, a set standard of terms or uses would need to be devised in which to ensure all systems can communicate and understand those uses and each use is applicable under the laws of those regions, and all systems of use must also be able to interact and interpret all of this and perform it flawlessly and within milliseconds, much like how DNS ensures that when you click on a link, you get back what you are looking for. That’s a tremendous amount of complexity that must be disguised in a very simple executable form. I’ve seen no one propose nor describe how such a system would work for music on the blockchain and how you might simplify the process. Will there be a standardized smart contract for music rights? Who will define those standards? Who will govern that process? Will there be a set rate for the use of music? Who will devise how third party apps and platforms interact with these smart contracts and how do you control which platforms can and cannot have access? How will we structure the data and what’s the proposed requirements for identifying a work properly? Who is the authority that will back the validity of this data? We can’t generally get artists to sit down and fill out basic paperwork, so whose going to make sure this is done and done correctly? Which body will police it?

What happens if a system can’t properly decipher a smart contract? Do we essentially designate a new type of 404 error? How and who resolves that issue? What will that experience be like for the listener and are we asking an awful lot from them to join this bold experiment, when for them the current model is working well? Today I pay a streaming service and I click on a song and it plays. What truly incentivizes anyone to want to switch over to this model? How do you incentivize music platforms who are locked into current streaming contracts to switch over?

And now let me expand the complexity by a massive factor. How do you perform an automated UGC sync? Across disparate assets? Multiple owners and industries? Automatically? It took me three years to solve that problem, and I can’t find anyone who is talking about how to solve that.

Seriously people…think about this stuff. I’m seeing article after article that talks about the simplification of music by just using the blockchain with wild promises that have no possibility of being solved anytime soon…if ever, and I don’t think we have the luxury of playing around with this while Rome burns.

Transparency is Clearly the Answer
If there’s a “Word of the Year” for the music industry, it certainly has to be the word “transparency”. There is an awful lot of talk about transparency that revolves around the idea that there are all these black box deals over rates and use that also involve advances paid by tech companies to rights owners with no understanding of where that money goes or if artists and songwriters actually see any of it. The other pressing aspect has to do with the accuracy of streaming plays and pay. Both are issues that need to urgently be addressed.

The idea put forward in partially solving this with blockchain is to create a universal rights database by transferring all the details of what the work is, plus use and rates over to a transparent system that not only covers the what/how/when/cost of something, but also to create a transparent transactional record of each use that can be audited by anyone. Expanding on this has also been the idea that you could also use the same type of system to create transparency as to who may have worked on a project, how much they “own”, what they get paid as a percentage, even automating that payment process, etc. Buy a song and everyone who should be paid is instantly paid.

That’s not necessarily a bad idea, in fact many aspects of this are brilliant. But when it comes to execution, yet again, there are a lot of questions I’ve yet to hear answered, and some rabbit holes I’m not sure we’re prepared to go down.

So let’s ask some questions, starting with how much transparency is too much transparency? I’ve seen it proposed that we should just open everything up and have a completely transparent music industry.

Imagine you went into Starbucks one day and on the menu board was a breakdown of the costs and sources of everything that went into your $4 latte, and you knew exactly what the margin was on any given item in the store? Would you still be inclined to pay $4?

Should we be breaking down and removing all obfuscation of the costs associated with making music? Should someone know who you paid, how much, your studio time, etc? Hell, should artists know what each other are being paid? What then would be the point of negotiations? How would you get the best sync or sponsorship deal? Does a session musician want the money he was paid on one gig transparent to other session musicians on that gig or other gigs?

Let’s suppose we find ourselves in a blockchain future where by using the blockchain and cryptocurrency, instead of the music platform (Spotify/Apple/Deezer/YouTube) paying the rights owner, the listener pays the artist direct through a micropayment system each time a song is played.

Who sets the rates? If the rates fluctuate, how do you inform or ensure that the listener is willing to pay a fluctuating rate? How do you get them to agree to terms for each artist across the blockchain? Assuming this is an automated process, what mechanism on the listener side ensures this is agreed upon? What about ensuring you are compliant with the consumer protections in each region? What about age validation or explicit material?

If you were to charge the listener on a direct micropayment system, how do you calculate that? Based on length of time? What if they don’t complete the track? What if by accident they forget to turn off their player? What if there is a network interruption? Will you pro-rate? Will you refund their money automatically? What if they accidentally play the wrong song or fast forward/rewind? Do you charge them for the first 20 seconds? What if it is the recommendation of a friend through a shared link? Who pays for that? Say they buy a track and realize they made an incorrect purchase? Can they get a refund? If your system of payments is automated and the money already has been distributed to those who contributed on your track (musicians, producers, songwriters, etc.), will you pull money automatically from them if you have a refund? What if you have a band and there are 5 members and 3 of them already spent their money? Who performs the refund? What if the payment system is compromised or the individual with the charges didn’t authorize that use? Who eats those charges?

How will the artist or their smart contract handle CRM? I mean once you are in direct 100% control of your data, assets, and business and no longer have the services of a PRO or label, you are now also in charge of the entire workload including customer service, so that tech is going to need CRM tools. How will you issue promotional tracks that are free to some but paid to others? How will you handle that some systems have free models and others have paid models?

You are going to say, but Alan, what about the fact that with such a system, we can deal with a bit of hassle because as artists, we now make more for each sale or stream? With the reduced overhead of all these middlemen, we can cover these things.

Okay true, the costs for the artist to transact have dropped, and they now make a higher percentage of income “per stream” because it is a direct connection to the fan who pays, but now you aren’t working as a collective body so you may have also driven the “transactional royalty rates” lower as the market is now even more highly saturated and competitive, plus there is no set rate for music since each artist wanted to be independent and set their own pricing via blockchain/cryptocurrency.

So now in the future, instead of the “music industry” as a collective having the leverage to negotiate/justify the costs/price of something, it will now be the individual artist in the position of justifying what their work is worth to people who have no understanding at all of the value.

Welcome to the completely transparent music industry. This. Will. Be. Brutal.

Closing Thoughts
I’ve said before, we need a better methodology for how we manage data, and clearly there are efficiencies and obvious improvements in transparency we could do in the near term. However, depending on how we execute these solutions we could in fact make the problems worse and all the money saved will simply be spent in other areas, thus wiping out any benefits. Add to that in order to answer many of the questions above, we need new technologies, standards, organizations, and companies to exist (that currently do not) before any of this will work. That won’t happen overnight, and it makes me wonder if there isn’t a better manner of going about solving these issues that still includes the blockchain, but doesn’t waste time reinventing the wheel.

More to come…